ECMC weighs produced‑water rule: phased recycling targets, credit trading and dispute over siting in 'disproportionately impacted' areas

The Colorado Energy and Carbon Management Commission (ECMC) spent a full day Feb. 27 taking testimony, hearing party presentations and debating a consensus draft of rules intended to implement House Bill 23-1242, the law that requires a statewide program to sharply reduce freshwater use in oil and gas operations and increase reuse or recycling of produced water.

The draft rules filed by a group of industry, local-government and nongovernmental parties would: set four-year compliance periods with phased statewide minimum averages for recycled produced water (beginning with a 4% minimum); authorize a basin-limited tradable recycled-water credit system to allow flexibility inside basins; create quarterly and annual reporting (including Form 47 data); and prohibit new centralized produced-water storage or treatment facilities in designated disproportionately impacted communities (DICs). The commission heard broad support for the consensus draft, but also strong objections to parts of it, especially the DIC siting prohibition and the scope of what qualifies as a recycled-produced-water “alternative.”

Why it matters: HB 23-1242 tasked ECMC with rules to "require rapid and substantial reduction of the use of fresh water and increase the use of recycled or reused produced water" in oil and gas operations. The balance the commission must find is legal (meeting the statute), technical (what water and technologies count), and social (protecting communities and addressing air/traffic concerns). Director Julie Murphy described the rulemaking as "a first, but not a final step," and staff and many parties said additional data collection, implementation work and follow-up rulemakings will be necessary.

What the consensus draft would do

- Targets and compliance framework: The consensus draft applies recycled-produced-water minimum averages to an operator''s combined operations within a geologic basin over rolling four-year compliance periods. The draft sets a phased schedule tied to the consortia''s recommendations (a 4% minimum beginning in 2026; higher percentages in subsequent periods leading toward ~2038 targets). Year 1 of each compliance period requires 50% of the period target as a ramp-up; years 2'—2 require full compliance. ECMC staff and the consensus parties said that the basin-level averaging encourages recycling where it is most efficient and avoids inefficient, high-impact actions at individual well pads.

- Credit system: The draft authorizes tradable recycled-produced-water credits that represent one barrel of recycled produced water. Credits can be created by over-compliance and applied within the same basin in the compliance period (credits are basin‑limited; the draft explicitly prohibits interbasin trading). Credits may be used within the compliance period and for up to two years into the next compliance period. ECMC staff said the system is designed to incentivize over-compliance while limiting the risk that credits from high-recycling basins would simply paper over fresh-water use elsewhere.

- Reporting and tracking: The rules build on existing Form 47 reporting (quarterly) and add an annual certification (April 1, starting 2027) that consolidates quarterly reports into a certification that an operator has met its recycled-produced-water percentage. Staff said it will build a public, automated ledger for credits and that reporting forms will be refined during implementation.

- Air quality and truck impacts: Multiple local governments and counties asked the commission to address air emissions and truck‑traffic impacts up front. The consensus draft defers detailed air-emissions reporting to a short stakeholder process and a follow-up rulemaking (parties suggested a nine-month stakeholder group and a 2026 rulemaking focused on air topics), but includes a commitment to develop reporting and protect attainment areas without increasing emissions.

Main areas of disagreement and risk

- Disproportionately impacted communities (DIC) prohibition: The draft mirrors HB 23-1242''s prohibition on new centralized produced-water storage or treatment facilities in DICs. Local governments and Western Slope operators (including TEP, QB Energy and county coalitions) argued their counties are largely designated as DICs because of census-block criteria (low income or housing-burden metrics), yet much of the land is federally owned or uninhabited and is precisely where centralized facilities would avoid truck traffic and reduce local impacts. Those stakeholders proposed a narrowly tailored exception for rural/uninhabited areas (for example, minimum setbacks from residences, and local-government concurrence). Environmental groups and some commenters opposed broad exceptions and urged caution: they said the DIC label reflects cumulative burdens and that exemptions risk shifting or growing harms.

- Produced-water alternatives and hydrologic integrity: Environmental parties urged that any "alternatives" that count toward operator targets should be waters that would otherwise be lost to the hydrologic cycle (for example, certain produced-water sources) and cautioned against counting municipal reclaimed or stormwater streams that should remain in public water cycles. Industry parties and some local governments countered that the DJ Basin may not have enough produced water locally to meet future targets and that a limited set of "alternatives" may be needed to achieve the higher targets in later compliance periods. The commission repeatedly heard that these questions should be studied in the near-term and addressed in follow-up rulemakings (2026 and 2028 were discussed explicitly).

- Data quality and verification: Nonprofit groups and outside analysts said public produced-water volumes in ECMC dashboards previously contained errors (e.g., double counting disposal and produced volumes) and that staff systems need stronger data harmonization, third-party audit capability, and searchable public reporting before a tradable-credit market is viable. Industry and staff replied that forms adopted in late 2023/2024 (Form 47, Form 7) improve baseline reporting and that much of the implementation detail (credit ledger, enforcement workflows) will be built during the multi-year implementation period.

Who said what (selection of voices)

- Commissioner Mesner (chair of the Colorado Produced Water Consortium) reviewed the consortium''s work and said the consortium used consensus-based decision making and would continue to refine targets and basin-specific recommendations.

- Director Julie Murphy (ECMC): "This is a first, but not a final step," and staff supported a process to adopt initial rules now and refine them with follow-up rulemakings and a final statement of basis and purpose after this hearing.

- Lance Waring (San Miguel County, Colorado Communities for Climate Action): "CC4CA supports the consensus proposal" and urged adoption of the draft targets and the ban on centralized facilities in DICs.

- Doug Overton (Rio Blanco County): urged the commission not to adopt measures that would increase truck traffic on the Western Slope and asked the commission to reconsider the DIC prohibition for rural counties where truck traffic and local economic impacts differ from the Front Range.

- Cindy Copeland (Boulder County): urged that air-emission reporting and protections be added quickly to avoid worsening ozone formation on the Front Range.

- Green Latinos, Conservation groups and 350 Colorado: urged rejecting interbasin trading and asked for stricter protections for DICs; they also sought stronger enforcement (including potential permit denials for repeat noncompliance) and more on-site recycling.

- Industry & coalition presenters (Chevron, TEP/Rocky Mountain, West Slope COGA, OG Society, Energy Council, Qb, Terra Energy, Gunnison Energy): generally supported the consensus draft approach to basin-level averaging and the intra-basin credit system, and emphasized the operational realities that make reuse practical in some parts of the state (for example the Piceance basin and parts of the DJ). Several operators urged clarifying the DIC prohibition so centralized facilities can be sited in uninhabited rural areas with safeguards.

How compliance and enforcement would work (as proposed)

- ECMC staff and consensus parties described a multi-layer monitoring and enforcement system: quarterly Form 47 reporting provides rolling data; an annual certification (April 1 each year starting 2027) summarizes compliance; operators failing to certify must file an annual compliance plan and quarterly progress reports; the commission or director may condition future OGDP approvals on compliance measures; if an operator remains out of compliance at the end of a compliance period, the operator would face tighter site-by-site requirements for future approvals and could be prevented from receiving location approvals until compliance is demonstrated.

- The draft makes the credit system an enforcement tool and an incentive, but the commission will still retain standard enforcement authorities (orders, penalties, conditioning permits). Staff said it will track credits in a public ledger and can bar credit use for an operator found to have misused or misreported credits.

Next steps and process

- Staff asked for up to two weeks after the hearing to finalize a revised statement of basis and purpose reflecting any changes that come out of the hearing; ECMC staff recommended reconvening in March for any redline updates.

- Parties and staff repeatedly recommended two follow-up rulemakings already reflected in the draft: a 2026 rulemaking to address air-quality reporting and administrability, and a 2028 rulemaking to consider targets and other issues for 2034 and 2038. The consensus draft itself contemplates iterative adjustments after data collection.

- The commission recessed the public hearing to continue on the next day; commissioners signaled intent to hold an executive session before next-day deliberations to receive legal advice on DIC-related legal questions.

Ending

ECMC commissioners will resume deliberations at the continued session. Staff and many parties told the commission that the draft rules are a workable starting point that must be refined through short-term implementation work (data systems, credit ledger, verification) and at least one or two follow-up rulemakings. The central policy tradeoffs going into deliberations are whether to accept a basin‑level averaged, tradable-credit model designed to accelerate recycling everywhere or to tighten site‑level restrictions and limit credit flexibility to preserve localized protections for disproportionately impacted communities.

(For the record: quotes in this article are drawn verbatim from the hearing transcript and are attributed only to persons listed in the meeting speakers array below.)